A Napster for Financial Data?

A boon to financial planners and individual investors.

IN THE
NOT-TOO-DISTANT FUTURE, you may
be able, with just a few mouse clicks, to
access any public company’s financial
reports in extraordinary detail and for
any period. In addition, you may be able
to perform an array of instant analyses of
those data.

THE UNDERLYING
TECHNOLOGY is available
now—XBRL (Extensible Business Reporting
Language). All that’s missing is a
standardized protocol to implement
it—and the first steps for creating such
a system have just been taken by Nasdaq,
Microsoft and PricewaterhouseCoopers.

THESE ORGANIZATION
HAVE JUST LAUNCHED a test
project designed to explore whether the
concept is feasible, practical and
sought by financial professionals,
investors and regulators.

THE OBVIOUS WINNERS
from such a system will be
financial planners and individual
investors, who will have at their
fingertips a huge amount of verifiable
and easy-to-analyze financial
information.

COMPANIES ALSO WILL
GAIN: They will appear more
forthright in providing financial
information to stakeholders and have an
easier time conducting internal data
analyses.

XBRL-FORMATTED DATA
WILL ENHANCE lender relations
with companies seeking credit; banks no
longer will be inundated with reams of
paper financial reports.

ACCOUNTANTS MAY BE
ABLE TO MOVE XBRL forward by
prodding their accounting software
vendors to include it in their
applications.

STANLEY ZAROWIN is a senior
editor on the JofA . Mr. Zarowin
is an employee of the AICPA, and his
views, as expressed in this article, do
not necessarily reflect the views of the
Institute. Official positions are
determined through certain specific
committee procedures, due process and
deliberation.

magine this: At any time of the day
or night, and with just a few clicks of the mouse,
a financial planner or an individual investor can
access a company’s present and past financial
reports in extraordinary detail. In addition, an
array of instant analyses of those data can be
performed, which displays them either graphically
or as conventional financial statements. Within
seconds a user can compare a company’s balance
sheets with those of several competitors, examine
an enterprise’s debt-to-equity ratio in any fiscal
period, chart its stock price history and download
an audit client’s major nonfinancial news. As if
that’s not enough, the same range of analyses can
be performed for any public company worldwide and
the information even can be converted into any
currency.

Key to Instructions
To help readers follow the
instructions in this article, we use two
different typefaces.

Boldface type is used
to identify the names of icons, agendas,
and URLs.

Sans serif type
indicates instructions and commands that
users should type into the computer and
the names of files.

“No way,”
you’re probably thinking. “At least not in my
lifetime.”

Think again. All the underlying
technology—XBRL (Extensible Business
Reporting Language)—for it is available
right now. All that’s missing is a
standardized protocol to implement it—and
the first steps for creating such a
protocol to perform those feats have been
taken. A team comprising the Nasdaq Stock
Market, Microsoft and
PricewaterhouseCoopers just launched a
pilot project designed to demonstrate that
the concept of making both the data and
the analysis tools available on the
Internet is not only feasible but both
practical and sought by financial
professionals, investors and regulators.

If you want to see what the future
looks like, just point your Web browser
to www.nasdaq.com/xbrl
(see exhibit 1 , at right)
and download a free demonstration file
called the Excel Investor’s Assistant.
You’ll need Excel 2000 or later to run
the demo.

Exhibit 1

Once you’re at the site, follow the
instructions to install the pilot. When done,
click on the file, Excel Investors Assistant.xls.
You will be asked whether you want Excel to enable
macros; you do, so click on the Enable
Macros box (see exhibit 2
,below left).

That will bring up the
opening screen of Investor’s Assistant (see
exhibit 3 , below right).

Exhibit 2

Exhibit 3

The Investor’s Assistant file contains two
components: an Excel spreadsheet with built-in
data analysis macros and formulas and a linked
database that contains five years of financial
information on 21 companies. The financial
information, however, is not just raw data—that
is, it’s not just a compilation of financial
numbers. Instead, each item in the database has
been labeled with an XBRL tag that identifies the
item as, for example, revenue, profit or
short-range debt. The XBRL tags are based on
standardized accounting definitions customized for
various industries. (For more on XBRL, see “
Finally, Business Talks the Same Language ,”
JofA , Aug.00, page 24.)

A
growing number of accounting software developers
are incorporating XBRL into their products so a
tag automatically gets attached to each item of
financial information as it is entered and
subsequently calculated by the accounting
software. The tags eventually will be useful for
anyone compiling both internal and external
financial reports and tax returns.

Because
many industries have unique categories of
financial data, an international consortium of
more than 170 companies is preparing customized
XBRL dictionaries, called taxonomies, that
optimize the XBRL definitions so the tags can
handle any special reporting structure. The goal
is to make XBRL a fully universal financial
information language that is both automatically
attached to the data and transparent to the
viewer.

The XBRL International consortium
was founded by the AICPA in 1999 and currently has
active chapters in Australia, Canada, Germany,
Japan, the United Kingdom, United States and
Singapore. Chapters are being developed in
Belgium, Hong Kong, India, Ireland, the
Netherlands, New Zealand, South Africa, Spain,
Sweden and Taiwan.

XBRL tagging eliminates
subjectivity when users compare financial results
from different businesses, thus making it easier
to extract and analyze comparable information.
However, XBRL doesn’t require companies to change
what they disclose and the way they report
financial results under current accounting
standards.

This is not the first time XBRL
has been used to publicly display financial data:
Earlier in 2002 Reuters and Microsoft became the
first to publish their corporate financial
statements using XBRL.

PLAYING WITH NUMBERS
If you want to put
the pilot to the test, open the Investor’s
Assistant and select one of the 21 companies. Once
you’ve made your selection, you have many options.
For example, you can compare a company’s operating
margin with its net margin. To do that click on
the Financial Measures tag and
then, under Ratios , check the
boxes Operating Margin and
Net Margin , and the following
graphic analysis will appear (see exhibit 4
, below).

Exhibit 4

As you can see,
the pilot project demonstrates that the fantasy
outlined in the opening paragraph of this article
is feasible using an off-the-shelf electronic
spreadsheet; there is no need for a specially
designed application. This demo uses Excel because
Microsoft was one of the project’s sponsors, but
it could just as well have been Lotus 1-2-3, the
free Linux OpenOffice or any other spreadsheet
application. The only requirement is that the
system be linked to a Web service with access to
comprehensive and up-to-the-minute financial data.
Under the best of circumstances, a government
regulatory source, such as the SEC, would provide
the core information to ensure accuracy and
authenticity. But media data, and even information
input from the companies themselves, would broaden
the database and make it far more valuable. In
this pilot, Nasdaq provided the
Internet-accessible data on the 21 companies from
the SEC’s EDGAR (Electronic Data Gathering
Analysis and Retrieval) filing system; they
include Forms 10K and 10Q.

If all you want
is a company’s financial statement, click on the
Financial Statements tab and
pick the time period you want to display (see
exhibit 5 , below).

Exhibit 5

If you want to
examine various ratio analyses, click on the
Ratio Analysis tab and adjust
the variables (period, variance materiality), and
you can even compare a business with its
competitor (see exhibit 6 , below).

Exhibit 6

The pilot also
gives you access to nonstatistical information.
For example, if you click on the Notes
tab, it will bring up the revenue
recognition policy for the company selected (see
exhibit 7 , below).

Exhibit 7

If you’d like to
see what a page of typical XBRL code looks like,
click on the last tab, XBRL Instance
Documents , and then on any of the blue
names (see exhibit, 8 , below).

Exhibit 8

NEXT STEPS
Who will benefit from
such a data-distribution system—in effect, a
Napster of financial services? The obvious winners
will be investors, who will have at their
fingertips a huge amount of information that is
both verifiable and easy to analyze. Companies
also will gain mightily. Not only will they appear
more forthright in getting financial data to
stakeholders but they will also appear more
transparent—thus addressing a high-priority public
relations problem in this era of Enron. In
addition, with all their financial information
laced with XBRL tags, they will have an easier
time conducting internal data analyses.

Consider, too, how XBRL-formatted data will
enhance relations with lenders. Banks examining
the books of credit-seeking clients will be able
to click their way to a decision rather than be
inundated with reams of paper reports to analyze
manually, so to speak.

What will it take
to transform the language of the financial world
to XBRL? Accountants may help speed along that
transition by prodding their accounting software
vendors to include XBRL in their applications.
CPAs also can encourage clients to incorporate
XBRL in their financial statements so banks will
become accustomed to using it.

So, if
you’re not yet on the XBRL bandwagon, you had best
get aboard quickly. The software tagging system
will enhance your professional stance and, in the
long run, boost your productivity.

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